Opera (OPRA): Debt Free And Fast Growing Browser Business

Opera Limited (NASDAQ:OPRA) is one of the world’s leading browser providers and an influential player in the field of integrated AI-driven digital content discovery and recommendation platforms (company presentation here). Providing faster and more innovative web browsers, Opera is the everyday browser of choice for more than 321 million people. The company’s headquarters is in Oslo, Norway.

In our opinion, management is firing on all cylinders. 2022 guidance is for revenue of $323 million – $326 million, representing 29% year-over-year growth at the midpoint, and adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) of $62 million – $64 million, a 19% margin at the midpoint, up from 11% in 2021. Opera has been investing in its business for growth opportunities and therefore we believe normalized adjusted EBITDA margins would be in the 25% – 35% range.

Opera has a rock-solid balance sheet. As of September 30, 2022, it had cash and marketable securities of $201 million and $168 million of present value of receivables from the 2022 sales of Nanobank and Star X. Opera holds a 6.4% ownership in OPay, the largest mobile money provider in Nigeria. Opera is also debt-free.

As further proof of management’s commitment to maximizing and unlocking shareholder value, in addition to the remaining $35 million of its existing buyback authorization, Opera acquired the shares of a pre-IPO shareholder, 360, representing a 20.6% stake, at $5.50/ADS, or about $129 million. Lastly, Opera recently declared a special dividend of $0.80/ADS, which amounts to roughly $71 million.

Valuation:

• Browser EBITDA 80 million (assumes EBITDA margin of 20% on 400 million rev)
• 12x EBITDA Multiple
• Browser Enterprise Value (EV) 960 million
• OPay 68 million (assumes 80% of fair market value per balance sheet)
• Total EV 1,028 million
• Debt 0 million
• Cash, mkt sec & PV of rec’v from sales of investments 170 million (estimated; adjusted for buyback of 360 stake & special dividend)
• Market Cap 1,198 million
• O/S 90 million (adjusted fully diluted shares converted to ADSs)
• = Implied price $13.30/share

We believe the share price discount to our estimate of fair value is in part due to the fact that Opera is 81% beneficially owned by its Founder/Co-CEO/Chairman, Yahui Zhoi. Such large ownership gives the founder control and prevents influence/activism by independent shareholders. We think this discount is overdone as the Chairman and management team have done an outstanding job building the business. As the company grows its North American and Latin American businesses we believe it will increasingly get more looks from potential investors.